By Dow Jones Business News, March 14, 2013, 03:45:00 PM EDT
LONDON--Europe's two largest cash equities clearinghouses on Thursday announced plans to merge and draw in a new U.S.
partner in an effort to compete in a market struggling with share trading volumes at a 10-year low.
EuroCCP, the platform owned by U.S.-based Depository Trust & Clearing Corp., signed a memorandum of understanding to
combine with smaller rival European Multilateral Clearing Facility, or EMCF, forming a new entity in which a unit of
BATS Global Markets Inc. would take a 25% stake.
Clearinghouses stand between the parties in a trade and guarantee it takes place in the event of a client default.
Recent market reforms in Europe have allowed customers to shop around between venues, leaving some of the platforms to
EuroCCP Chief Executive Diana Chan said banks and trading firms have been pushing for consolidation in the fragmented
clearing landscape to cut transaction costs.
"We don't expect equities trading to grow, and there are unlikely to be many new platforms coming to the market," she
said in an interview. "It's a good time for the post-trade market to become more simple and rational by combining."
The new company would retain the EuroCCP name and be led by Ms. Chan, with DTCC retaining a 25% stake, equal to that
held by EMCF's co-owners, a unit of ABN Amro NV (ABNYY) and Nasdaq OMX Group Inc. ( NDAQ ).
DTCC, the dominant clearer for stock and bond deals in the U.S., launched a strategic review of its European business
following an aborted effort to merge with LCH.Clearnet, one of the region's largest clearinghouses for securities and
derivatives. Switzerland'sSix Group owns the other large equities clearer.
Combining EuroCCP and EMCF is intended to cut transaction costs by eliminating one set of membership fees and
connectivity expenses. The companies said it would will also reduce the amount of collateral posted against trades and
the number of settlement fees.
The proposed deal would also see Bats Chi-X Europe, which operates the region's largest share trading platform by
volume, take a stake in a European clearing house for the first time.
BATS Chi-X Europe lacks an interest in a clearinghouse and has long campaigned for competition in the sector. By
contrast, incumbent exchanges have traditionally forced firms trading on their markets to use a designated clearer,
frequently its own in-house operation.
Mark Hemsley, chief executive of BATS Chi-X Europe, said in an interview that its planned stake was intended to
prevent the two clearinghouses from falling into the hands of rivals.
"It's a good thing for the market to have an independent platform, and the ownership structure agreed brings a good
balance in terms of the interests of all parties," he said in an interview.
The company will operate EMCF's technology infrastructure but use the risk management framework of EuroCCP.
EuroCCP was established by the DTCC in 2007 to take advantage of efforts to stimulate competition in European trading
and clearing. The company went on to benefit from competition and grab a large chunk of market share, but the company
has failed to turn a profit in the tough trading environment.
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